The Age of Austerity

Posted by himelfarb on January 24, 2013 · 74 Comments 

Notes: Keynote talk, CCPA Post-Austerity session, Toronto, January 9, 2013

We are living in the “Age of Austerity” or at least so says David Cameron, the UK’s Prime Minister. He made this announcement in 2009 at the Conservative convention just before becoming prime minister. This meant, he explained, that he would have to fix the errors, the folly of previous governments. He would restore the economy by cutting spending, reducing the size of government, and shifting resources from public to private.

In 2010, the G20 met in Toronto and, apart from arresting citizens, they were also talking austerity. Canada led the charge. Fiscal consolidation we called it. Canada had become the darling of fiscal policy – the world leader in austerity. (Remember when we used to be the world leader in diversity, inclusive community, gender equality, balanced crime policy?) Increasingly our allies were asking us how to implement an austerity agenda. And certainly we had some important lessons to share given our fiscal successes in the 1990s. But what we may have forgot to tell everyone was that taxes were much higher then than they are now. Interest rates were higher too, so the costs of debt were higher, the urgency was greater, and we had more room to offset the consequences of cuts. We may have also forgot to tell everyone that the rest of the world was spending while we were contracting and because of this we were able – at least in part – to grow ourselves out of deficit.

In any case, by 2011, austerity had spread across most of Europe. Cameron, it seems, had aptly characterized the times.

By the end of 2012, however, the glow was starting to come off austerity. This was not just because of the spreading riots, disruption and violence across Europe though that’s a pretty good reason. This was not just because of job losses, soaring inequality or the devastating human consequences felt most heavily by the most vulnerable, and by women and the young – all good reasons too. No, austerity was losing its lustre primarily because it just wasn’t working. In the U.K., for example, the prime minister just extended his targets for balancing the budget because the cuts were not delivering their promise. The budget office lowered its growth projections because the costs of austerity are greater than expected. Austerity Europe was experiencing huge pain, little gain.

A recent IMF report, what I like to call the apology report, admits that the IMF had seriously underestimated the consequences of austerity on growth and now were cautioning that maybe we should all back off. (To be fair they were always cautious about austerity and its impacts.)

For a number of economists this was no surprise. Joseph Stiglitz had warned that austerity is medieval medicine, don’t do it. Paul Krugman and, here, Jim Stanford were saying that this was not the time, austerity would make things worse, possibly take us to depression.

What became increasingly clear was that austerity had never been driven by fiscal policy or economics or evidence. It was driven by ideology. Market fundamentalism. A desire to make government much smaller, eliminate or reduce, as much as politics allowed, so-called entitlements, create a “pro-business” climate of less regulation, less government, and, above all, lower taxes.

Think about the irony of this: that the huge recession-induced deficits that were largely the result of tax cuts and deregulation were now the justification to renew the commitment to that same failed ideology. Deficits were a gift – cover to do what many had wanted to do all along. Cut government down to size. Cut services. Cut. It seems that every failure of this neoconservative approach is used by its advocates to justify doing more of the same. That’s kind of nuts.

How about Canada? I left the Privy Council and Canada for a few years in 2006. At that time Canada had a $16 billion surplus. That’s a real problem for those who might share Cameron’s ideology because without big deficits it’s harder to argue for the urgency to cut programs, reduce government. Instead, the decision was made to cut taxes, for example, taking two cents out of GST. Today those two cents cost the federal government about $14 billion annually. That’s on top of continuing the corporate tax cuts the Liberals had already launched and on top of numerous “boutique tax cuts” and on top of Liberal tax cuts in 2000 that were the biggest in Canadian history.

Imagine none of that had happened. Imagine that the federal government had at least a good portion of the revenue that they gave up over the last dozen years. They would have had enough money to be far more resilient in the face of recession, to help provinces that were in trouble, to invest in science, education, in a greener, cleaner economy and to begin to transform our health and social programs so they would be there for future generations.

Instead, we’re now talking about austerity as though it’s inevitable, as though we have no choice. (When our leaders tell us that there is no alternative, it is a safe bet to assume that there is indeed an alternative and one that we would prefer were it on offer.)

When I came back to Canada just before the 2011 election it seemed as if we were all suffering the effects of austeria. Every Wednesday in Ottawa the opposition had what they called waste Wednesdays: a press conference to show how much money Conservatives were wasting. Their biggest issue? These spendthrift Conservatives. Then I watched the leadership debate. Four men (May had not been invited) were competing for who’s the biggest fiscal hawk, who’s the biggest tax cutter. Nobody wanted to be seen as a tax and spender.

Where is the discussion on alternatives? Where’s the tax conversation that we ought to be having? Our current deficit is the result of recession-related spending – now ended, I would say prematurely – and unaffordable tax cuts. But even still if you compare us to anyplace else, our fiscal situation is pretty good. This is not the 1990s. We’re not Greece.

As I said, austerity is losing its lustre. We are seeing a debate now all across Europe about whether austerity is the way to go and my view is that we are going to see taxes coming back up, including a big commitment to containing the worst of inequality. The debates are intense in Europe. Not surprising. The cuts have been deep. The suffering great. The backlash severe. And the fiscal results lousy.

In Canada, austerity has been implemented in slow motion and this incremental, barely visible austerity has been seductive. It’s harder to rally opposition. More so because very little information has been provided on the extent and implications of the cuts – it is almost impossible to develop a complete picture of where we are headed. Strategic obfuscation.

Right now, the most visible cuts are the most politically sexy or at least saleable. The targets? Public servants, teachers’ salaries, politically easy stuff that feeds off stereotypes and nurtures divisions between unionized and non-unionized, public and private.

Who else? Welfare recipients. Refugees. Migrant workers. Austerity by stealth, it seems, is making us meaner. Policy in the age of austerity becomes a highly competitive, zero-sum game. Never-ending austerity invites ever deeper divisions, resentments and jealousies.

Perhaps most disturbing about this slow motion austerity are the opportunity costs. Our focus on cutting – often nickel-and-dime cutting – takes us away from the big issues. We’re not talking about climate change. We lag when we should be a leader. We lag on green energy and we could be a leader. We lag Northern Europe – and we should be comparing ourselves to the best – on jobs, on youth employment, on equality. We’re in drift. Self-imposed austerity and a list of trade deals is not an economic plan.

What is the alternative to an austerity agenda? Of course we have to be fiscally prudent, to reduce waste, make wise choices, balance spending and revenue over time, reduce debt in good times. But as Jim Stanford has shown we are far more likely to achieve our objectives if we focus on employment and a living wage that will restore the revenue we need and reduce the demand for government help. The alternative to austerity – take back our future rather than leave it to the vagaries of the market. To make the investments now in the clean and green jobs of the future. To tackle the big challenges together – climate change, inequality and poverty, eroding democracy. To stop the erosion in our public services but rather transform them in the face of our demographic challenges and technological opportunities. The alternative to austerity – the renewal of our sense of the common good and a conversation about taxes because we only get the future we are willing to pay for.

Great change generally starts outside conventional political institutions. Idle No More, the students in Montreal, the Occupy movement, the many fighting against risky pipelines, the health care providers protesting cuts to refugee health benefits and a few rich folk calling on governments to tax us more – I believe those are part of a larger movement. The ‘enough already’ movement.

Each of these movements has its critics. Their demands are not always clear. They do seem to wax and wane. But if we see them as part of a larger discontent, a widespread hunger for something better, maybe we will understand that first and foremost they are about changing the conversation – and they are not likely going away. With all their differences they are asking some of the same questions: How did fiscal health become more important than human health? How did the health of the so-called job creators become more important than the health of the rest of us? How do we put people and the natural world that sustains all else at the centre of the agenda?

Canada would be an excellent place to do that.

Filed under Adapting health and social architecture, Harnessing the global economy, Improving public institutions, Post featured on front page · Tagged with austerity, David Cameron, IMF, Jim Stanford, Joseph Stiglitz, Paul Krugman